Sunday, February 24, 2013

Riding the Petro-Tiger

I don't think even Sideshow Steve Harper believes the fable of Canada's energy superpowerdom any more. My guess is that he knows full well that the federal government is riding a tiger and Steve doesn't want to be the prime minister who has to step off. I suspect bitumen is a problem Steve would much rather kick down the road.

One thing that's finally sinking in is that bitumen, like other high-carbon fossil fuels, is living on borrowed time. The business of business is making money and business is finally coming to realize there are a lot of "stranded assets" in the fossil fuel market, on the books of the major energy producers.

It comes down to one simple fact. If we're not going to destroy our civilization there's a finite amount of CO2 that we can release into our atmosphere. Either we find a way to scrub greenhouse gases out of the atmosphere, and there's no sign of that, or we have to accept a cap on the amount of fossil fuels we can burn. The problem is the major energy producers already have many times more fossil fuels on their books than we can possibly safely consume. Most of what they already have booked as reserves will have to be left in the ground.

If you're in the situation where you're awash in a glut of anything you get picky. You go for the good stuff and leave the garbage behind. When you're having to pick among fossil fuels, you take the lowest-carbon fuels and leave the high-carbon garbage. Low-carbon fuels simply give you more energy, more bang for your emissions buck.

Some high-carbon fuels, like coal, have great attraction because they're really cheap. Some high-carbon fuels, like Athabasca bitumen, are quite expensive. To get sandy tar and transform it into something you can run in your Ford entails extraction through mining or boiling, upgrading, the addition of dilutents, transportation via pipelines to distant refineries in Texas or even,via supertankers, Asia, refining into some form of consumable petroleum that is then transported to market. That's a lot of processing, transporting, refining and that means a lot of energy and enormous amounts of renewable resources.

Put bitumen head to head with conventional crude oil and there's no contest. That's why bitumen is valuable only when world oil prices are very high. When they're not, bitumen is a terrible bet. And when markets come to realize we're in a Carbon Bubble and we have a glut of fossil fuels then the price is going to tumble, badly. That's how high-carbon assets will become "stranded."

Historically, Alberta’s economy has been the most unstable in all of
Canada, but the volatility was largely confined to its own borders.
Today, aided and abetted by the federal government, Alberta has exported
its instability to the rest of the country.

Those familiar with the tenets of staples theory will recognize the pattern.

Pioneered
by Canadian economist Harold Innis, staples theory emphasized the
dilemmas associated with single-resource production. When the world
price of a commodity is high, the allure of riches can be so great that
people throw all of their effort and money into riding the resource
boom. But the price of staples is unstable, subject to, among other
things, over-production, replacement technologies, the vagaries of
climate, transportation glitches and even fashion.

Just as the
price of a staple commodity can rise quickly, it can drop, bringing
economic, social and political ruin. Canada’s landscape is dotted with
this story, from towns (Uranium City) to regions and provinces
(Newfoundland and cod). Sometimes, of course, the good times return, but
often they don’t. In any case, the result is growing economic and
political dependency, what Innis referred to as the “staples trap” –
easy to get into, hard to get out of. That’s where Alberta and Canada
find themselves now.

Prime Minister Stephen Harper is on record as declaring Canada an
emerging energy superpower. The efforts his government has made to
promote this vision – the passing of omnibus legislation to eliminate
perceived roadblocks to oil development, the politically motivated
attacks on individuals and organizations who oppose further petroleum
expansion – have been unprecedented.

Far from being a superpower,
however, Canada increasingly looks like a hundred-pound weakling, a
single-resource producer, buffeted by pricing over which we have no
control, technological innovations that portend a reduction in the value
of oil and environmental issues that threaten all of us.

Like
Montreal’s fur trade magnates 200 years ago, who suddenly found that the
market for beaver pelts had disappeared, we find ourselves today
sending emissaries here, there and everywhere, pleading, begging and
cajoling others to save us from the fate unfolding before our eyes. But,
as Shakespeare said, the fault lies not in the stars, but in ourselves –
and the governments we have elected, which too eagerly have opened the
doors leading to the petroleum trap.

At some point we're going to have to act like grownups and accept we are on the back of a tiger. We're either going to have to step off and deal with that on our own terms or we can wait until we fall off and have no control over how our fate unfolds.
This would be a perfect moment for the Opposition in Ottawa to show they're possibly fit to govern Canada by demonstrating clear-headed leadership on the petroleum trap that's about to snare our economy and take it down. Don't hold your breath.

The question remains, how long will it take until the so-called mainstream media actually admits that the trap has sprung and that it is the fault of the CON-Artists? I actually think that it is becoming more obvious everyday but there is still very little talk of it in the MSM. But I am fairly certain that the tide is changing on the issue and that at some point it will become 'fashionable' to condemn the path taken by this government and that all those editorial boards and columnists who doggedly supported Harper won't lose a step condemning these years of terrible policies - and they will act as though they were never cheerleaders to our economic disaster.